McElroy v. Pernod Ricard USA, LLC

Opinion

1 2 3 4 5 6 7 10 11 APRIL MCELROY, Case No.: 3:23-cv-02183-CAB-VET

12 Plaintiff, O R D E R C O M P E L L I N G 13 ARBITRATION AND STAYING v. CLAIMS 14

PERNOD RICARD USA, LLC.; et al., 15 [Doc. No. 98] 16 Defendants. 17 AND ALL RELATED CROSS ACTIONS 18 19 20 21 22 23 24 25 Third-Party Defendant Owens Brockway Glass Container (“Owens”) filed a motion 26 to compel arbitration and stay all claims filed against it by Third-Party Plaintiff Pernod 27 Ricard USA, LLC (“Pernod”). [Doc. No. 98.] The Court grants Owens’ motion and stays 28 the claims against it. 2 The core allegation in this case by Plaintiff April McElroy involves a bottle of 3 Pernod Sparkling Wine purchased at her local CVS. Plaintiff claims that this bottle of wine 4 exploded as she tried to open it. [See generally Doc. No. 22.] Pernod filed a third-party 5 complaint against Owens for indemnification and contribution pursuant to a supply 6 agreement relating to Plaintiff McElroy’s product liability, failure to warn, and negligence 7 theories. [Doc. No. 53.] Owens filed an answer and brought cross claims. [Doc. Nos. 60– 8 61.] 9 Brought into this case nearly last October, Owens has moved to compel arbitration 10 based on a supply agreement (Supply Agreement 1) between Owens and Pernod. [Doc. 11 No 98-2 ¶ 16.] Pernod claims that a more recent supply agreement (Supply Agreement 2), 12 signed in 2023, controls this dispute. [Doc. No. 102-1.] Both Agreements include 13 arbitration provisions. 14 The arbitration clause in Supply Agreement 1 contains three relevant provisions. 15 Upon the existence of a dispute relating to indemnification: 16 The parties must negotiate in good faith to resolve any dispute regarding the Agreement. If the dispute is not resolved within sixty (60) days of written 17 communication of the dispute, each party shall nominate one senior officer as 18 its representative to meet to attempt to resolve the dispute. If the representatives are unable to resolve the dispute, then the dispute shall be 19 submitted to a panel of three arbitrators operating under the procedural rules 20 of the American Arbitration Association.

21 [Doc. No 98-2 §16.1; emphasis added.] Supply Agreement 2 contains slightly different 22 language on the same topic: 23 [I]f the Parties fail to resolve the Dispute, and a Party desires to pursue 24 resolution of the Dispute, the Dispute may be submitted by either Party for resolution in binding arbitration pursuant to the then-current Commercial 25 Arbitration Rules of the American Arbitration Association (“AAA”), except 26 where they conflict with these provisions, in which case these provisions control. 27 28 1 [Doc. No. 102-1 § 34(c); emphasis added.] Like its predecessor, Supply Agreement 2 also 2 contemplates a sixty-day resolution period followed by a meeting among senior 3 representatives prior to the arbitration option. [Id. § 34(b).] 4 Almost two months after its addition to this suit, Owens sent a letter to Pernod’s 5 counsel on December 19, 2024 requesting indemnification from the claims asserted in this 6 litigation and, in the alternative, engaging the dispute resolution procedure contained in 7 what appears to be Supply Agreement 2. [Doc. No. 98-3.] According to Owens, the parties 8 were unable to resolve the dispute, triggering this motion to compel. 10 The Federal Arbitration Act (“FAA”) governs the enforceability of arbitration 11 agreements in contracts. Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 67 (2010). The 12 FAA makes such written arbitration agreements “valid, irrevocable, and enforceable, save 13 upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. 14 § 2. “Because arbitration is fundamentally a matter of contract, the central or primary 15 purpose of the FAA is to ensure that private agreements to arbitrate are enforced according 16 to their terms.” Momot v. Mastro, 652 F.3d 982, 986 (9th Cir. 2011) (internal quotation 17 marks and citation omitted). 18 The FAA “requires courts rigorously to enforce arbitration agreements according to 19 their terms, including terms that specify with whom the parties choose to arbitrate their 20 disputes and the rules under which that arbitration will be conducted.” Epic Sys. Corp. v. 21 Lewis, 584 U.S. 497, 506 (2018) (citations omitted). In deciding whether to compel 22 arbitration, a court must determine: “(1) whether there is an agreement to arbitrate between 23 the parties; and (2) whether the agreement covers the dispute.” Brennan v. Opus Bank, 796 24 F.3d 1125, 1130 (9th Cir. 2015). Since “[a]rbitration is a product of contract,” a court 25 applies ordinary state law principles to determine whether a valid contract to arbitrate 26 exists. Davis v. Nordstrom, Inc., 755 F.3d 1089, 1092-93 (9th Cir. 2014). The party 27 seeking to compel arbitration bears the burden of proving by a preponderance of the 28 evidence the existence of an agreement to arbitrate. See Ashbey v. Archstone Prop. Mgmt., 1 Inc., 785 F.3d 1320, 1323 (9th Cir. 2015) (citing Cox v. Ocean View Hotel Corp., 533 F.3d 2 1114, 1119 (9th Cir. 2008)). 3 “[A]s a matter of federal law, any doubts concerning the scope of arbitrable issues 4 should be resolved in favor of arbitration.” Moses H. Cone Mem’l Hosp. v. Mercury 5 Constr. Corp., 460 U.S. 1, 24 (1983). Accordingly, a motion to compel arbitration “should 6 not be denied unless it may be said with positive assurance that the arbitration clause is not 7 susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved 8 in favor of coverage.” United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 9 574, 582–83 (1960). 11 Pernod, looking to Supply Agreement 2, argues that the relevant arbitration 12 provision is merely optional, and regardless, Owens waived any right to arbitration. 13 Owens, which urges that Supply Agreement 1 applies, responds that (1) it never waived 14 arbitration, (2) that the arbitration agreement is mandatory but required good faith 15 negotiation prior to arbitral resolution, (3) and that arbitration would not prejudice the 16 parties but streamline this case. 17 I. Whether the Agreement Contains an Arbitration Provision 18 There is a threshold dispute between Pernod and Owens as to which agreement 19 applies to this motion. But this is not a case of two ships passing silently in the night: both 20 agree that they are bound, at minimum, by one of those Agreements. Nevertheless, the 21 Court need not resolve the issue at this juncture because both Supply Agreements 1 & 2 22 contemplate arbitration. 23 If proceeding under Supply Agreement 1, it is clear that “any dispute”—if it remains 24 unresolved by the “good-faith” negotiation provisions of the Agreement—“shall be 25 submitted” to AAA arbitration. [Doc. No 98-2 §16.1.] Supply Agreement 2’s language, 26 Pernod argues, contemplates merely “optional” arbitration. But where the language of the 27 arbitration provision is “plain and unambiguous, that is the end of [the Court’s] analysis.” 28 See United States ex rel. Welch v. My Left Foot Children’s Therapy, LLC, 871 F.3d 791, 1 796 (9th Cir. 2017). The plain language of the arbitration provision in Supply Agreement 2 2 makes clear that arbitration is not optional; instead, the provision gives either party the 3 option to unilaterally initiate arbitration to address an unresolved dispute. [Doc. No. 102- 4 1 § 34(c).] 5 Whether proceeding under Supply Agreement 1 or Supply Agreement 2, arbitration 6 is required to address the parties’ disagreement. And based on Pernod’s disputed 7 contention that Owens must indemnify it for the harm alleged by Plaintiff, the claim falls 8 squarely into the scope of either Supply Agreement. Indeed, Pernod makes no effort to 9 dispute that specific point—instead—arguing for waiver. Ultimately, the question of 10 which Supply Agreement governs (technically, another dispute) will be left for the 11 arbitrator. 12 The Court finds that Owens has carried its initial burden to show that there is an 13 agreement to arbitrate between the parties, and that the agreement covers the present 14 dispute. 15 II. Waiver: Inconsistent Acts 16 The next question for the court is whether Owens waived any right to arbitration. 17 “The right to arbitration, like other contractual rights, can be waived.” Martin v. Yasuda, 18 829 F.3d 1118, 1124 (2016), citing United States v. Park Place Assocs., Ltd., 563 F3d 907, 19 921 (9th Circ. 2009). Waiver by litigation conduct is a “gateway” issue of arbitrability to 20 be decided by a district court. Yasuda, 829 F.3d at 1123. “A party seeking to prove waiver 21 of a right to arbitration must demonstrate: (1) knowledge of an existing right to compel 22 arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party 23 opposing arbitration resulting from such inconsistent acts.” Id. at 1124. 24 The case law in the Ninth Circuit appears leniently construed against waiver. In 25 determining waiver, courts look to a party’s actions which indicate a conscious decision to 26 seek a judicial forum and a judgment on the merits of the arbitrable claims. See Yasuda, 27 829 F.3d at 1125. Delay alone is not sufficient: the Circuit has held that even a 10-month 28 delay in compelling arbitration does not necessitate waiver. See Armstrong v. Michaels 1 Stores, Inc., 59 F.4th 1011, 1015 (9th Cir. 2023). But where a party actively litigates a 2 case, including conducting discovery and litigating dispositive motions, a finding of waiver 3 is appropriate. See, e.g., Kelly v. Pub. Util. Dist. No. 2 of Grant Cnty., 552 F. App’x 663 4 (9th Cir. 2014). 5 Pernod argues that Owens has actively litigated this case and therefore waived any 6 arbitration. Since Owens answered in November 2024, Owens has “participated” in at 7 least a dozen fact witness depositions prior to moving to compel arbitration. [Decl. of 8 Chelsea C. Yamabe ¶ 9.] There is no dispute that Owens limited its participation to simply 9 appearing. Moreover, neither Owens nor Pernod disagree that Owens knew about the 10 existing right to compel arbitration: Owens asserted arbitration as a defense in its 11 November answer to the third-party complaint. [Doc. No. 60 ¶ 28.] As discussed, both 12 Supply Agreements contemplate arbitration. 13 The Court finds that the circumstances indicate that Owens has not taken actions 14 inconsistent with the right to arbitrate. Owens has not filed a single dispositive motion. 15 Owens has itself not led the deposition of any witnesses. Based on the case law, Owens’ 16 mere participation in a dozen or so depositions does not qualify as a waiver of its arbitral 17 right. See e.g., Williams v. Cigna Fin. Advisors, Inc., 56 F.3d 656, 661–62 (5th Cir. 1995) 18 (no waiver where defendant filed a motion to dismiss and a motion to stay the proceedings, 19 answered the complaint, asserted a counterclaim, and exchanged discovery). 20 Owens asserted arbitration as a defense to Owens’ third-party complaint and filed a 21 motion to compel arbitration just six months after its answer. See, e.g., Com-Tech Assocs. 22 v. Computer Assocs. Int’l, Inc., 938 F.2d 1574, 1576 (2d Cir. 1991) (failing to raise the 23 defense of arbitration eighteen months after answering the complaint points to waiver). 24 Here, there has been no “extended silence” or a “much-delayed demand for arbitration.” 25 See Van Ness Townhouses v. Mar Indus. Corp., 862 F.2d 754, 759 (9th Cir. 1988). Owens 26 rightfully points out that Supply Agreement 1 itself contemplated some lead time before 27 arbitration became an option. Supply Agreement 2 contains similar provisions. The letter 28 1 sent by Owens to Pernod on December 19, 2024 clearly evidences its desire to abide by 2 the dispute resolution procedure reflected in both Agreements. 3 On these facts, Pernod has not shown Owens’ intention to waive arbitration and 4 instead take advantage of a merits-focused judicial determination. 5 III. Waiver: Prejudice 6 Even assuming that waiver based in acts inconsistent with the right to arbitration is 7 a close call, Pernod, as the entity opposing arbitration, fails to identify any prejudice that 8 has been caused by the six-month delay in demanding arbitration. 9 In order to establish prejudice, Pernod must show, as a result of a delay in demanding 10 arbitration, that it has incurred costs that it otherwise would not have incurred, that it has 11 been forced to relitigate an issue on the merits on which they have prevailed in court, or 12 that Owens has received an advantage in litigating in federal court that it would not have 13 received in arbitration. See Yasuda, 829 F.3d at 1126–27. 14 Pernod offers only a conclusory argument that Owens received an advantage by 15 sitting through various depositions involving parties to the primary suit. The Court cannot 16 conclude that this necessarily advantaged Owens. Pernod does not indicate whether these 17 depositions had anything to do with the claims asserted against or by Owens. See Fisher 18 v. A.G. Becker Paribas Inc., 791 F.2d 691, 697 (9th Cir. 1986) (even extensive discovery 19 into both arbitrable and non-arbitrable claims before moving to compel arbitration is 20 insufficient prejudice for a waiver if that discovery is available for trial of the non-arbitrable 21 claim in federal district court). Notably, Owens has not sought to issue any discovery for 22 its own advantage. But see PPG Indus., Inc. v. Webster Auto Parts, Inc., 128 F.3d 103, 23 109 (2d Cir. 1997) (by serving interrogatories and a documentary subpoena, the party 24 demanding arbitration received a “vast amount of information” relevant to its claims). 25 Pernod brought Owens into this suit for indemnification. Arbitration would decide 26 that very issue, while allowing the principal litigation between Plaintiff and Pernod to 27 proceed. Plaintiff has not asserted any claim against Owens; nor has Owens filed any sort 28 | claim against Plaintiff. Pernod has not carried its burden on this issue, which alone 2 || would counsel against waiver. 4 The Court grants Owens’ motion to compel and orders the parties to arbitration. See 5 ||9 U.S.C. § 4. The parties shall file a status update with the Court within 60 days regarding 6 || the arbitration. The Court STAYS all claims asserted between Owens and Pernod until the 7 ||resolution of arbitration. See 9 U.S.C. § 3. 8 Itis SO ORDERED. 9 10 || Dated: July 10, 2025 (ib 11 Hon. Cathy Ann Bencivengo 12 United States District Judge 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28